VNC stands for 'Virtual Nework Computing', and is basically the standard protocol that various companies sell as "screen sharing". In a nutshell, VNC operates by sending an image of a server computer's desktop over the network, and the client computer's mouse and keyboard input back to the server.
VNC is also used for such tools as Air Display (
http://avatron.com/apps/air-display) and Screen Recycler, (
http://www.screenrecycler.com/ScreenRecycler.html) which trick your server (main) computer think it has an extra monitor attached. The apps then only stream the contents of that extra monitor over the network to a recipient computer, which, when displayed as full-screen, gives the impression that the entire secondary computer's display is part of your main desktop.
Note: there's probably going to be somewhat more lag than you'll find on a DisplayLink device, even if you're connected via 1000BaseT instead of wifi. Still, depending on what you're doing, that might be more than acceptable.
(As a side note: While no other Macs can be, all 27" iMacs can be used as an external Mini DisplayPort monitor--so assuming you like glossy screens, when the cost of an old 27" iMac drops below the cost of a 27" monitor... go for it.)